Real estate debt is a big concern in today's Fed environment, as the industry expects a 40% rise in debt maturities in 2024. Meanwhile, office properties – already facing record vacancies – represent the largest percentage increase in those properties.
That's according to recent research from Colliers, which provides both a dose of reality and some optimism about CRE's looming debt picture as offices adapt both financially and in their facilities to maintain viability.
Debt Maturities Rise, Fueled by Office Space
Colliers' comparison of the Mortgage Bankers Association's data from 2022 and 2023 revealed that the difference in 2024 loan maturities rose by $270 billion. Aaron Jodka, Colliers' director of research for U.S. Capital Markets, said banks accounted for $114 billion, followed by CMBS, CDO, and other ABS at $97 billion. In addition, credit companies, warehouses and "other" increased by $53 billion.
"Though loans can be refinanced and renegotiated, our analysis points to the increase coming from loan extensions, as it is uncommon to issue one-year paper," Jodka noted.
Office saw the most significant change in maturities in 2024, up $89 billion, followed by "other," including self-storage, mixed-use, and manufactured housing, which increased $72 billion. Jodka said that recent growth in this category's alternative, or specialized, asset classes has added a new dynamic to refinancing and liquidity. Industrial/warehouse and hotel/motel increased between $45 and $48 billion.
Colliers also found that CMBS spreads have come in, offering another bright spot in the lending market. Single-asset single-borrower loans have shown good movement, Jodka said, suggesting increased demand. This may allow for refinancing or new issuance, providing liquidity in the marketplace, Jodka said.
Employers Adapt Work Space to Bring Employees Back
As companies adjust their financing strategies, they are also addressing employee needs in an evolving workspace environment. Jodka noted that companies are encouraging a return-to-office movement by providing better experiences in the workplace versus a remote or home office.
"Businesses are supporting a sense of community through shared social spaces and task-focused work environments," he said. Additionally, he said they've seen an expansion of "Zoom rooms" and conference spaces that feature best-in-class technology and acoustics.
These updates come at a cost. Jodka said that new collaborative spaces constitute a greater percentage of the overall office environment. Colliers' research also found that today's office build-outs are more expensive, and properties have been helping with creative offerings, like tenant improvement allowances and rent relief. Some tenants are using subleased space to help with the build-outs as well.
Jodka noted that these efforts to adapt and rightsize space have been a bit of a wash. "Although companies are reducing their footprints," said Jodka, "today's office build-outs are more expensive, and overall budgets aren't going down the way one might expect."
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